The much-anticipated US inflation numbers provided few, if any, clues about the future direction of interest rates. If anything, the outlook is probably murkier now than ever before. At least when the inflation rate was high, we knew which direction interest rates would go. But now the market is virtually rudderless.
Problem is, the US consumer headline inflation rate rose to 3.7% in August from 3.2% a month earlier. That could be seen as a disappointment for interest-rate doves who could be hoping that the Fed would stop tightening.
Core inflation, however, which strips out volatile items, told a slightly different story. It came in at 4.3% compared to 4.7% in July, which could be bad news for interest-rate hawks. Maybe, just maybe, interest rates may have peaked.
For now, it looks as though the Fed could sit on its hands at the September interest-rate meeting. The data doesn’t appear to be conclusive enough for the rate-setting committee to hike rates again. Then again, the Fed also knows that its job is far from done. Inflation remains stickier than it would like. In fact, it is higher than its target rate of 2%.
For us long-term investors, economic murkiness can be a godsend. It means that markets could stay volatile as traders flip and flop between buying and selling. It means that we could pick up cheap shares as a result of their indecisiveness.
Warren Buffett once quipped that the stock market is a place for transferring money from the active to the patient. So, our job as patient investors is not to try and second-guess central banks’ next move. It really is a waste of our time.
Instead, our job is to work out roughly how much a particular company is worth. Then we need to wait until we can buy it at an attractive price. Those moments will come.
In fact, they might happen more frequently as traders jump in and out of the market. Thing is, we pay a high price when things look rosy. Bargains tend to appear when the outlook is less uncertain.
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Disclosure: David Kuo does not own any of the shares mentioned.